Almonds Grown in California; Salable and Reserve Percentages for the 1999-2000 Crop Year

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

7 CFR Part 981

[Docket No. FV99-981-3 PR]

Almonds Grown in California; Salable and Reserve Percentages for

the 1999-2000 Crop Year

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This rule invites comments on establishing salable and reserve

percentages for California almonds received by handlers during the

1999-2000 crop year. The almond marketing order (order) regulates the

handling of almonds grown in California and is administered locally by

the Almond Board of California (Board). The percentages would be 77.64

percent salable and 22.36 percent reserve. Salable almonds may be sold

by handlers to any market at any time. Reserve almonds must be withheld

by handlers or disposed of in authorized outlets. The 1999-2000 crop is

estimated to be the largest crop on record. Volume regulation is

intended to promote orderly marketing conditions and avoid unreasonable

fluctuations in supplies and prices.

DATES: Comments must be received by September 9, 1999.

ADDRESSES: Interested persons are invited to submit written comments

concerning this proposal. Comments must be sent to the Docket Clerk,

Fruit and Vegetable Programs, AMS, USDA, room 2525-S, P.O. Box 96456,

Washington, DC 20090-6456; Fax: (202) 720-5698; or E-mail:

[email protected]. All comments should reference the docket

number and the date and page number of this issue of the Federal

Register and will be made available for public inspection in the Office

of the Docket Clerk during regular business hours.

FOR FURTHER INFORMATION CONTACT: Martin Engeler, Assistant Regional

Manager, California Marketing Field Office, Marketing Order

Administration Branch, F&V, AMS, USDA, 2202 Monterey Street, suite

102B, Fresno, California 93721; telephone: (559) 487-5901, Fax: (559)

487-5906; or George Kelhart, Technical Advisor, Marketing Order

Administration Branch, Fruit and Vegetable Programs, AMS, USDA, room

2525-S, P.O. Box 96456, Washington, DC 20090-6456; telephone: (202)

720-2491, Fax: (202) 720-5698. Small businesses may request information

on complying with this regulation, or obtain a guide on complying with

fruit, vegetable, and specialty crop marketing agreements and orders by

contacting Jay Guerber, Marketing Order Administration Branch, Fruit

and Vegetable Programs, AMS, USDA, P.O. Box 96456, room 2525-S,

Washington, DC 20090-6456; telephone (202) 720-2491, Fax: (202) 720-

5698, or E-mail: Jay.G[email protected]. You may view the marketing

agreement and order small business compliance guide at the following

web site: http://www.ams.usda.gov/fv/moab.html.

SUPPLEMENTARY INFORMATION: This proposal is issued under Marketing

Order No. 981, as amended (7 CFR part 981), regulating the handling of

almonds grown in California, hereinafter referred to as the ``order.''

The marketing order is effective under the Agricultural Marketing

Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter

referred to as the ``Act.''

The Department of Agriculture (Department) is issuing this rule in

conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil

Justice Reform. Under the marketing order now in effect, salable and

reserve percentages may be established for almonds handled by handlers

during the crop year. This rule would establish salable and reserve

percentages for almonds received by handlers during the 1999-2000 crop

year which runs from August 1, 1999, through July 31, 2000. This rule

will not preempt any State or local laws, regulations, or policies,

unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted

before parties may file suit in court. Under section 608c(15)(A) of the

Act, any handler subject to an order may file with the Secretary a

petition stating that the order, any provision of the order, or any

obligation imposed in connection with the order is not in accordance

with law and request a modification of the order or to be exempted

therefrom. A handler is afforded the opportunity for a hearing on the

petition. After the hearing the Secretary would rule on the petition.

The Act provides that the district court of the United States in any

district in which the handler is an inhabitant, or has his or her

principal place of business, has jurisdiction to review the Secretary's

ruling on the petition, provided an action is filed not later than 20

days after the date of the entry of the ruling.

This proposal invites comments on establishing salable and reserve

percentages for California almonds received by handlers during the

1999-2000 crop year. The percentages would be 77.64 percent salable and

22.36 percent reserve. Salable almonds may be sold by handlers to any

market at any time. Reserve almonds must be withheld by handlers or

disposed of in authorized outlets. The 1999-2000 crop is estimated to

be the largest crop on record. Volume regulation is intended to promote

orderly marketing conditions and avoid unreasonable fluctuations in

supplies and prices. This action was recommended by the Board at a

meeting on July 12, 1999, by a vote of seven in favor and three

opposed. Volume regulation was last implemented for California almonds

during the 1994-95 crop year.

Section 981.47 of the order provides authority for the Secretary,

based on recommendations by the Board and analysis of other available

information, to establish salable and reserve percentages for almonds

received by handlers during a crop year. The crop year runs from August

1 through July 31. To aid the Secretary in fixing the salable and

reserve percentages, Sec. 981.49 of the order requires the Board to

submit information to the Department on estimates of the marketable

production of almonds, combined domestic and export trade demand needs

for the year, carryin inventory at the beginning of the year, and the

desirable carryout inventory at the end of the crop year. Section

981.66 authorizes the disposition of reserve

[[Page 43299]]

almonds to certain outlets such as almond oil, almond butter, and

animal feed.

The Board met on May 12, 1999, to review the projected crop

estimate and marketing conditions for the 1999-2000 season. The day

before the Board's meeting, the California Agricultural Statistics

Service (CASS) issued its initial forecast for the 1999 almond crop at

760 million kernelweight pounds. Based on that estimate, the Board

recommended salable and reserve percentages of 84.79 percent and 15.21

percent, respectively. The CASS revised its crop estimate upwards to

830 million pounds on July 8, 1999. Based on the updated crop estimate,

the Board met on July 12 and revised its recommendation for salable and

reserve percentages to 77.64 and 22.36 percent, respectively, again by

a seven to three vote. The 830 million pound crop estimate represents a

60 percent increase over 1998-99 production, and is 10 percent larger

than the previous record crop of 756 million pounds produced in 1997-

98. According to the CASS, although freezing temperatures in early

April caused locally variable production losses, average yields are

expected to be high due to excellent bloom and good weather during the

pollination period. If realized, this will be the largest almond crop

on record to date.

A tabulation of the estimates and calculations used by the Board as

it considered recommending volume regulation for the 1999-2000 almond

crop follows:

Marketing Policy Estimates--1999 CROP

[Kernelweight basis]

------------------------------------------------------------------------

Million

Pounds Percent

------------------------------------------------------------------------

Estimated production:

1. 1999 Production........................ 830.0 ...........

2. Loss and Exempt--4.0% (Resulting from 33.2

the removal of inedible kernels by

handlers and losses during manufacturing)

3. Marketable Production.................. 796.8 ...........

Estimated Trade Demand:

4. Domestic............................... 190.0 ...........

5. Export................................. 459.0

6. Total.................................. 649.0 ...........

Inventory Adjustment:

7. Carryin 8/1/99......................... 100.4 ...........

8. Desirable Carryover 7/31/00 (available 70.0

for early season shipments during 2000-

2001)....................................

9. Adjustment (No. 8 minus no. 7)......... -30.4 ...........

Salable/Reserve:

10. Adjusted Trade Demand (Item 6 plus 618.6 ...........

item 9) (quantity of almonds from the

marketable production necessary to meet

trade demand needs)......................

11. Reserve (No. 3 minus no. 10).......... 178.2 ...........

12. Salable % (Item 10 divided by item 3 ........... 77.64

x 100)..................................

13. Reserve % (100% minus item 12)........ ........... 22.36

------------------------------------------------------------------------

As specified in the marketing order, the Board considered the

factors set forth in the preceding table in its deliberations. The

available data indicates a supply for the 1999-2000 crop year of 827.2

million kernelweight pounds (marketable production adjusted for carryin

and desired carryout), which will exceed estimated trade demand by

178.2 million kernelweight pounds. The estimated trade demand of 649

million kernelweight pounds represents 110 percent of the estimated

shipments for the current crop year, and exceeds the record high

shipments of 1997-98 by 36 million kernelweight pounds, or 6 percent.

In addition to the factors included in the table, the Board

considered additional information such as the weather-related variation

in production from year to year, significant increases in recent almond

plantings, and increased yields. These are the primary factors

contributing to the projected oversupply situation. The Board also

considered recent price fluctuations in its deliberations. In 1997,

grower prices averaged $1.55 per pound; during the 1998-99 season,

prices have reportedly dropped significantly. This has been attributed

to larger than anticipated 1998 supplies, speculation within the

marketplace, and the anticipated large 1999-2000 crop.

The proposed salable percentage of 77.64 percent would make 618.6

million kernelweight pounds of the marketable production available to

handlers for sale to any market. Combining this figure with the carryin

inventory from the 1998-99 crop year (100.4 million kernelweight

pounds) and deducting the desired carryout inventory at the end of the

1999-2000 crop year (70.0 million kernelweight pounds) would result in

a supply of 649 million kernelweight pounds. This supply would allow

the industry to meet its trade demand needs of 649 million kernelweight

pounds and allow for market growth. The remaining 22.36 percent, or

178.2 million kernelweight pounds, of the marketable production would

be withheld by handlers to meet their reserve obligation.

All or part of the reserve almonds could be released to the salable

category if it is found that the supply made available by the salable

percentage is insufficient to satisfy 1999-2000 trade demand needs or

desirable carryover for use during the 2000-2001 crop year. The Board

is required to make any recommendations to the Secretary to increase

the salable percentage prior to May 15, 2000, pursuant to Sec. 989.48

of the order. Alternatively, all or a portion of the reserve almonds

could be sold by the Board, or by handlers under agreement with the

Board, to governmental agencies or charitable institutions or for

diversion into almond oil, almond butter, animal feed, or other outlets

which the Board finds are noncompetitive with existing normal outlets

for almonds.

As previously stated, 3 of the 10 Board members opposed the

recommendation for volume regulation at both meetings where the

percentages were recommended, with those in opposition commenting that

this year's projected ``large'' crop would ultimately

[[Page 43300]]

be considered average in size, and that next year's crop would be even

larger due to new plantings, or expressing a preference for seeing the

industry concentrating on building demand rather than imposing a

reserve. Observers at the Board meetings who were opposed to volume

regulation commented that the industry should deal with increasing

supplies by building demand through its promotional activities, rather

than implementing reserves. Others suggested that it is more

appropriate to manage market risks at the individual handler level

through marketing tools such as forward contracting, rather than

controlling supplies at the industry level.

After much discussion, the majority of Board members supported the

establishment of a reserve to help maintain orderly marketing

conditions so that the industry can successfully manage the projected

large 1999 almond crop. The long term goal of the almond industry is to

increase almond consumption and demand, and the supporting Board

members believe this can be best achieved in the presence of stable and

orderly marketing conditions. These members believe that use of the

reserve provisions of the order as a supply management tool, in

conjunction with other marketing tools available in the order, can

assist in accomplishing the industry's goals.

The ``Guidelines for Fruit, Vegetable, and Specialty Crop Marketing

Orders'' (Guidelines) issued by the Department in 1982 specify that 110

percent of recent years' sales be made available to primary markets

each season for marketing orders using volume regulation. This rule

would provide an estimated 719 million kernelweight pounds of

California almonds for unrestricted sales (1999 crop salable production

plus carryin from the 1998 crop) to meet increasing domestic and world

almond consumption demand. This amount exceeds the estimated delivered

sales for 1998-99 California almonds by about 22 percent. Thus, the

Guidelines' goals are met.

Pursuant to requirements set forth in the Regulatory Flexibility

Act (RFA), the Agricultural Marketing Service (AMS) has considered the

economic impact of this action on small entities. Accordingly, AMS has

prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of

business subject to such actions in order that small businesses will

not be unduly or disproportionately burdened. Marketing orders issued

pursuant to the Act, and rules issued thereunder, are unique in that

they are brought about through group action of essentially small

entities acting on their own behalf. Thus, both statutes have small

entity orientation and compatibility.

There are approximately 105 handlers of California almonds who are

subject to regulation under the order and approximately 6,000 almond

producers in the regulated area. Small agricultural service firms have

been defined by the Small Business Administration (13 CFR 121.601) as

those having annual receipts of less than $5,000,000, and small

agricultural producers are defined as those having annual receipts of

less than $500,000.

Based on the most current data available, about 54 percent of the

handlers ship under $5,000,000 worth of almonds and 46 percent ship

over $5,000,000 worth on an annual basis. In addition, based on

acreage, production, and grower prices reported by the National

Agricultural Statistics Service (NASS), and the total number of almond

growers, the average annual grower revenue is approximately $195,000.

In view of the foregoing, it can be concluded that the majority of

handlers and producers of California almonds may be classified as small

entities.

Pursuant to Sec. 981.47 of the order, this rule would establish

salable and reserve percentages applicable to California almonds

received by handlers during the 1999-2000 crop year. The volume

regulation percentages would be 77.64 percent salable and 22.36 percent

reserve. Salable almonds may be sold by handlers to any market at any

time. Reserve almonds must be withheld by handlers or disposed of in

authorized outlets such as almond oil, almond butter, and animal feed.

Volume regulation is warranted this season because the marketable

production estimate of 796.8 million kernelweight pounds combined with

the 1998-99 carryin inventory of 100.4 million kernelweight pounds

results in an available supply of about 897 million kernelweight

pounds. After subtracting the desirable carryout of 70 million

kernelweight pounds, the remaining supply of 827 million kernelweight

pounds would be 178 million kernelweight pounds higher than the trade

demand of 649 million kernelweight pounds. Volume regulation is

intended to promote orderly marketing conditions and avoid unreasonable

fluctuations in supplies and prices, and should ultimately improve

grower returns.

Regarding the impact of this rule on affected entities, the salable

and reserve percentages would apply uniformly to all handlers in the

industry, regardless of size. There were some concerns expressed at the

Board's meeting regarding the impact of a reserve on small handlers,

specifically, that small handlers who do not have adequate storage

facilities may have to rent such facilities to hold their reserve

almonds. These are costs they would not otherwise incur. However, the

costs of holding almonds in reserve would be borne proportionately

throughout the industry. All handlers would be required to store

reserve almonds in varying quantities, depending upon the total amount

of almonds handled. Those with existing facilities would also incur

storage costs, although those costs may be fixed costs spread over a

longer period of time. In any event, costs associated with storing

reserve product are expected to be more than offset by the benefits of

orderly marketing. In addition, the order was amended in 1996 to allow

handlers to transfer their reserve obligation to other handlers. Thus,

handlers with no storage facilities would now have the option to

transfer their reserve withholding obligation to other handlers who

could store the reserve almonds.

Furthermore, almond production, like that of many agricultural

commodities, can vary significantly from season to season due to a

variety of factors. This in turn can contribute to wide fluctuations in

prices. For example, California almond production over the past 10

years has varied from a low of 366.7 million kernelweight pounds in

1995 to a high of 756.5 million kernelweight pounds in 1997. Grower

prices for the past 10 years, as reported by the NASS, have varied from

a low of $.93 per pound in 1990 to $2.48 per pound in 1995.

In addition, returns to growers have reportedly decreased by as

much as $1.00 per pound since the beginning of the 1998-99 crop year.

It is believed that a larger than anticipated 1998 crop, market

speculation, and an estimated record 1999 crop have contributed to the

depressed grower prices. Such swings in supplies and price levels can

result in market instability and uncertainty for growers, handlers,

buyers and consumers. While the benefits of this rulemaking may be

difficult to quantify, any stabilizing effects of volume regulation

would impact both small and large handlers positively by helping them

maintain orderly marketing conditions through supply management.

Regarding alternatives, the Board considered not recommending

volume regulation this season. As previously mentioned, three Board

members and some observers at the Board's meetings

[[Page 43301]]

expressed their view that the industry should continue to focus on

increasing the demand for almonds rather than implementing a reserve.

It was expressed that market risk can be managed by individual handlers

through marketing tools such as forward contracting, rather than

managing supply at the industry level. However, the majority of Board

members supported the establishment of a reserve to help maintain

orderly marketing conditions so that the industry can successfully

manage the projected large 1999 almond crop. The Board also deliberated

the merits of allocating the reserve to noncompetitive outlets or

ultimately releasing part or all of the reserve as salable. The Board

decided to delay this decision until next spring when additional

information, including an estimate of the 2000-2001 crop, is available.

However, handlers may sell reserve almonds to authorized reserve

outlets at any time pursuant to an agency agreement as authorized in

Sec. 981.67 of the order, and receive credit against their withholding

obligation.

This rule may impose some additional reporting, recordkeeping and

other compliance requirements on both small and large handlers.

Handlers who choose to divert their reserve almonds to authorized

outlets would have to file certain reports with the Board. This

requirement is the same as that applied during the 1991-92 and 1994-95

crop years when almond reserves were last established. Most of the

industry's handlers handled almonds during those years and are thus

familiar with the required reports. These reports have been previously

approved by the Office of Management and Budget (OMB) under OMB Control

No. 0581-0071. As with all Federal marketing order programs, reports

and forms are periodically reviewed to reduce information requirements

and duplication by industry and public sector agencies. Finally, the

Department has not identified any relevant Federal rules that

duplicate, overlap or conflict with this rule.

In addition, the Board's meetings were widely publicized throughout

the almond industry and all interested persons were invited to attend

and participate in Board deliberations. Like all Board meetings, the

May 12 and July 12, 1999, meetings were public meetings and all

entities, both large and small, were able to express their views on

this issue. The Board itself is composed of 10 members, of which 5 are

producers and 5 are handlers.

Also, the Board has a number of appointed committees to review

certain issues and make recommendations to the Board. The Board's

Reserve Committee met on April 1, May 11, and July 12, 1999, and

presented its recommendations to the Board at meetings on May 12 and

July 12, 1999. All of these meetings were open to the public, and both

large and small entities were able to participate and express their

views. Finally, interested persons are invited to submit information on

the regulatory and informational impacts of this action on small

businesses.

A 30-day comment period is provided to allow interested persons the

opportunity to respond to this proposal. Thirty days is deemed

appropriate because any salable and reserve percentages established

based on this proposal should be implemented as soon as possible. The

beginning of the 1999-2000 crop year is August 1. All written comments

received within the comment period will be considered before a final

determination is made on this matter.

List of Subjects in 7 CFR Part 981

Almonds, Marketing agreements, Nuts, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, 7 CFR part 981 is

proposed to be amended as follows:

PART 981--ALMONDS GROWN IN CALIFORNIA

1. The authority citation for 7 CFR part 981 continues to read as

follows:

Authority: 7 U.S.C. 601-674.

Note: This section will not appear in the Code of Federal

Regulations.

2. In Part 981, Sec. 981.240 is added to read as follows:

Sec. 981.240 Salable and reserve percentages for almonds during the

crop year beginning on August 1, 1999.

The salable and reserve percentages during the crop year beginning

on August 1, 1999, shall be 77.64 percent and 22.36 percent,

respectively.

Dated: July 29, 1999.

Robert C. Keeney,

Deputy Administrator, Fruit and Vegetable Programs.

[FR Doc. 99-20499 Filed 8-9-99; 8:45 am]

BILLING CODE 3410-02-P